Lessons in Strategy from Nespresso, Kodak & Blockbuster

A decade ago this involved going to a café, or devoting 5 minutes to an elaborate process of using your own espresso machine or stovetop, or as a last resort the perils of instant coffee. In each instance, the customer experience was compromised. Either you had good coffee but the process was slow, expensive and inconvenient, or you had quick, cheap, convenient coffee that resembled dirty dishwater. Enter Nespresso.

Nespresso turned an open commodity market (coffee machines and coffee beans) into a closed network where consumers shopped in branded boutique for branded coffee pods to use on easy to use branded machine. After they become a club member they can exclusively buy Nespresso products online at their convenience.

To lock people into the experience further, they changed the language of coffee. People used pods – not grounds or beans. The pods were part of the hundreds of patents that Nespresso controlled so that no other competitors could emerge and duplicate their exact model.

Nestle, the owners of Nespresso, made a strategic decision to enter the coffee market by addressing the consumers problem and creating a go-to-market strategy that is different, defensible and disrupts the current market.

Strategy is the lifeblood of all companies

Strategy allows companies to generate new revenues, gain a market advantage, and protect it from the competition. However, this is a minefield fraught with danger – the wrong strategy, the right strategy poorly implemented or having no strategy can see a company go in the wrong direction – fast. Increasingly, in this world of disruption, you could have the right strategies that become ineffective as new competition waits to take your market share.

Take Kodak and Blockbuster. Both used innovation in their business models to become market leaders. Kodak dominated global sales of cameras and camera film; Blockbuster franchised the movie rental experience killing off the competition. Both companies dominated until the disruptors finally became the disrupted.

The emergence of digital cameras and smartphones killed the Kodak business model. The profit margin on camera film was 70%, on digital products it was under 5%. The mentality was around maintaining the same business model with a different product so they pressed on in the same way as before. Strategic insight may have seen that new business models and products were emerging – life diaries (Facebook), casual image sharing (Instagram) and image libraries (Getty Images) – were getting the lion share of attention. ‘Experience’ was the new product.

Blockbuster believed it could coast on its market position. With a solid corporate strategy Blockbuster could have been an early adopter and started its own video streaming service. It had enough financial firepower that it could have bought Netflix and stolen the advantage for the future. However, it had a major cost base – the rent of 9,000 stores and agreements with film companies pinned them down to their eventual demise.

Both Kodak and Blockbuster saw their traditional businesses made obsolete and strategy could have saved them. How? These are the questions businesses should ask themselves to position themselves for strength.

Do you have a strategy?

Many companies have a pitch, or a plan, or a vision. These things contribute to where you are going but are not strategy. Think about your product and service, what makes it different, who your customers are, what value your product has to them, and how they will engage with you. This opens up a discussion around branding, personnel, channels to market and many other elements that can help you create a model where you can occupy a gap in the market. By starting on this alone you are already in the top 10% of operating businesses out there.

Do you understand your strategy?

Companies that cannot explain why their actions will equal performance are in trouble. Create a pros and cons ledger for each strategy you have undertaken. By identifying the key drivers and risks you can determine whether your strategy has merit, and stops you from going up blind alleys.

Which are corporate strategies, which are business strategies? Not all strategies are the same – corporate strategies include growth by acquisition, capital raising to accelerate the business, strategic partnerships. Business strategies revolve around customer profiling, pricing strategy, market factors and value proposition. By recognising the difference you have clarity on different elements that makes up your future pathway.

What is the difference between you and your competition?

Understanding your value proposition is crucial, but only part of the story. A way to protect yourself from competition is to invest in branding. By positioning yourself in a unique way, this can often protect you for deep discounters.

Are you consistent in your decision making?

Strategy relies on consistent decision making. Many companies that are rudderless end with opposing strategies that lack focus and erode value. Ensure that your decisions follow the goals, vision and strategies you have set out for your business.

Do you understand your customer’s needs?

Deep engagement with a customer shines a light on what you are offering. John Collison, CEO of Stripe illustrates this well “Our first six months were spent solving the problems of 5 or 6 companies really well. We could scale this. This was better than launching too soon and having 100 customers who didn’t really use us properly”.

Can your business make decisions quickly?

Quick decision making can be an advantage in its own right. Small companies and start-ups can address market problems quickly that market leaders will be slow in responding. Often, large companies will see that opportunities are too small and leave them alone. Exploit these positions to create value in an emerging market.

Are you following the path of least resistance?

Many companies establish their strategy so it fits into what they were already doing. Write a 6 month, 1 year and 3 year plan. What do you need to do to get there? Who is standing in your way? How can you overcome them? plan of action that uses strategy for each element is crucial for success.

After you have thought about these questions and their answers, you then move to execution of your plans. That is a big job. Time for that coffee.

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